Mutual Funds: Should the Government Put Sunlight on their practices and rid their operations of conflicts?



John C Bogle, the founder of the Vanguard Group may be onto something.  He has suggested that investment advisors and money managers for mutual and other funds haven’t done a good job at the kind of diligence that will protect their investors from

huge losses by stating, “How could so many highly skilled, highly paid securities analysts and researchers have failed to question the toxic-filled, leveraged balance sheets of Citigroup and other leading banks and investment banks.”


Mr. Bogle has also suggested that the government must apply a federal standard of a fiduciary duty to institutional money managers and that there is a deep conflict of interest because money management firms and their employees who now serve two masters, their shareholders (e.g. Lehman Brothers) and their fund clients and that such conflicts can be resolved only by separating the money management units from the larger publicly traded banks and investment firms.  For example, under such a plan, the Deutsche Bank Group would spin off DWS Investments, its mutual fund unit or Sun Life of Canada would divest itself of MFS Investment Management.


As Treasury and the SEC get more into the weeds with the systemic regulation of these funds, Mr. Bogle’s ideas desire serious consideration by both Congress and the regulators, as well as consideration of the number of independent directors on the boards of these publicly-traded funds.


I question if these captive boards as they now exist for the public-traded funds provide any check against the excesses in the recent past.


I encourage your comments.




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